A big challenge in public sector procurement is being able to attract and retain competent staffing. Talent is hard to find, retirements are continuing, and training costs are increasing. A frequent conversation, within senior leadership circles – will we be better positioned if we outsource our procurement services? The answer is not an either-or decision.
Most institutions have been practicing some form of outsourcing for a while. Cooperative buying groups leverage their collective spend through shared contracts; group purchasing organizations thrive and are able to provide a full range of services from lowest cost items to contract management; procurement policies and strategies involves subject matter experts as consultants with familiarity in public sector procurement leading practices. Outsourcing is getting attention.
Factors which influence outsourcing:
Smaller public entities, in terms of budgets, typically do not fund staffing resources for procurement. Instead, departmental staff are expected to successfully manage the process, which is unrealistic. Their CFO is required to ensure value for money and compliance with competitive bid laws. Consistently, external auditor findings have shown the lack of professionalism in procurement to be a financial problem often accompanied with ethical dilemmas.
Outsourcing the procurement expertise is a growing option for smaller entities to consider. The cost of outsourcing the services is offset by benefits of lower costs for goods and services; improved contract management; the ability to meet fluctuations in operational priorities; access to advisory services; and objective decisions void of potential conflicts.
Many smaller public entities have formal associations [1] where they do outsource their procurement needs. Their focus is heavily weighted on cost savings for the requisite goods and services. Operating supplies and equipment, which are available through a number of suppliers, lend themselves to being under multi-year contracts. 3rd party buying organizations base their services on leveraging this potential spend for clients.
While there is nothing basically wrong with that arrangement, other non-financial objectives get lost when it’s mainly a transactional model. Other factors such as ESG criteria may be unintentionally excluded in the sourcing decisions. Local suppliers lose out as the bundling of commitments to get the lowest cost exceeds a local supplier’s ability to compete.
Larger public entities are outsourcing to address the chronic labour shortage in procurement. If a larger institution had 20 staff in their procurement group, with a 10% churn rate, this would be at least 2 people per year. In 5-years, that’s 50% of the procurement staff being replaced. Outsourcing could potentially save the cost of two staffing positions at a minimal cost of $200,000 per year, realizing a budget reduction of $1,000,000 in that same 5-year period.
With the number of multiple projects in the public sector, outsourcing enables the hiring of procurement expertise to provide strategic guidance or provide process oversight. Due to workload demands, internal procurement staff have limited ability to provide timely input on projects which are running concurrently. Outsourcing is a logical option.
Outsourcing practices:
Outsourcing the procurement functions from running a competitive bid through to supplier selection, can complement the need for internal responsibility. The intent and benefit of having external resources allows departments to address their operational needs.
This leaves the more complex technology or infrastructure projects to be better managed by internal operational and engineering staff. These procurements can still invite external procurement consultants to assist, on an as and when required basis.
External advisors are in a good position to recommend the type of competitive bidding process which can optimize the competitive tension. Be it an RFP, NRFP, or an RFP with BAFO, 3rd party procurement advisors have more experience in the market in these matters. The 3rd party becomes the buying agency and represents the interests of the public entity. The 3rd party is responsible to maintain the technology for administrative efficiencies and remain current with legislative mandates in public procurement.
Policy challenges:
Staffing time is consumed on a daily basis, meeting the demand for the ongoing requisite goods and services. It is near impossible to have policies up to date with the Truth and Reconciliation Calls to Action; supplier codes of conduct; the circular economy; trade agreement rulings; the UN SDGs; or decarbonization strategies. Procurement policies need to reflect current strategies and practices to be credible. Outsourcing policy work is an option.
Risks:
There are inherent risks in outsourcing procurement, as with any other important function. Outsourcing procurement can create a dependency on 3rd parties in the future. The 3rd party service provider must remain competitive and the public entity should not become complacent.
It requires that the organization have a means of assessing the value of the outsourcing service provider. Having KPIs and /or a service level agreement contributes to the accountability in the contractual commitments. The parties should have an objective means to assess and rate the services being delivered.
Vested outsourcing provides an incentive for a 3rd party to stay competitive. A vested outsourcing agreement ties performance to financial remuneration. Targets for expected outcomes and the means to achieve or exceed these KPIs are critical. Both parties have a mutual interest in ensuring results. For the staff of the 3rd party working for a public sector client, if there is a financial bonus for achieving results, there is usually the additional incentive to ensure satisfaction. 3rd parties in a vested outsourcing agreement are encouraged to make recommendations for future service improvements and benefits.
A caveat with vested outsourcing is to go beyond only the financial savings. Again, if incentives are only seen as being another cost factor, they will have limited impact. Outsourcing requires effective business relationships.
Outsourcing deliberations demand a measured business case. Best practices in the governance of outsourced services see returns of 5-15% for a strategically managed spend. Stakeholders need assurance that their confidence in the public spending is well placed. While financial goals are important, outsourcing impacts the moral of staff and organizational culture [2]. The balance between savings and values needs to be part of the conversation.
Public Procurement In Canada:
Certified procurement professionals play a pivotal role in the public procurement world. These experts are well-equipped with the knowledge and skills needed to navigate the intricacies of procurement processes. Whether you’re looking to enhance your procurement acumen through procurement management courses or seeking valuable insights through
Procurement services in Canada encompass a wide range of activities, all aimed at achieving the best value for taxpayer money. Procurement service providers work closely with public sector procurement consultants to streamline processes, maintain transparency, and uphold ethical standards. This collaborative effort ensures that the procurement landscape remains fair, competitive, and cost-effective.
Obtaining a procurement certificationor a purchasing certificate can be a wise decision for those aspiring to excel in public procurement. These certifications validate your expertise and demonstrate your commitment to professionalism in the procurement arena. Certified procurement professionals are highly regarded for their ability to make informed decisions that benefit both the public and the government agencies they serve.
Public procurement in Canada is not just about acquiring goods and services; it’s about contributing to the well-being of communities and the country as a whole. The individuals in this field understand the significance of their roles and strive to uphold the highest standards of ethics and accountability.
Whether you’re a seasoned procurement professional or just starting your journey, the public procurement landscape offers a wealth of opportunities for growth and development. From procurement management coursesto ongoing procurement webinars, resources are available to help you stay informed and up-to-date with the ever-evolving world of procurement.
Written by Larry Berglund
Larry is one of our leading Subject Matter Experts.
Larry drafts public sector procurement policies which address social and economic development opportunities, as well as works with social enterprises. He facilitates social procurement strategies within government entities, increasing the understanding by elected officials and suppliers, and develops social procurement skills with procurement professionals. Larry has been a lecturer for United Nations staff and advocates on the role of social enterprises as being an integral part of the supplier community. He presented to the World Bank on social procurement strategies.
Larry, who played guitar in a rock band in his early days, is also the author of several books.
Disclaimer: The views and opinions expressed in this article are those of the Subject Matter Experts and do not necessarily reflect the official policy or position of The Procurement School.